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TMI Blog1977 (1) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in the year 1966 was completed in March, 1969. The authorities acting on the affidavit dated 7th February, 1969, filed by the said Madappa, the deceased, and the said pronote regarding the loan of Rs. 1,00,000, excluded the said sum of Rs. 1,00,000 from the assessment of gift-tax. The said deceased had included the said sum of Rs. 1,00,000 in his wealth-tax return as on 31st March, 1969, and had also paid income-tax on interest accrued on the said amount up to 31st March, 1969, although the said loan had already become time-barred on 15th October, 1968. The Assistant Controller of Estate Duty acting in accordance with the provisions of Explanation 2 to section 2(15) and sections 9 and 27 of the Act held that the amount represented by the said loan, i.e., Rs. 1,00,000, was a gift to the sons by the deceased and since the date of the said disposition fell within 2 years of the death of the deceased, the same had to be included in the estate of the deceased that passed after his death, and therefore, he subjected the same to estate duty. Appeal against the said decision at the instance of the accountable person was dismissed by the Appellate Controller of Estate Duty, though on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a disposition by the deceased in terms of Explanation 2 to section 2(15) of the Act, it is not necessary that the extinguishment in question should be brought about or suffered by the deceased consciously or by a design. In support of the above submission, the learned counsel relied upon a decision of the Court of Appeal in In re Stratton's Disclaimer : Stratton v. Inland Revenue Commissioners [1958] 34 ITR (ED) 47 ; 3 EDC 830 (CA) and has drawn our pointed attention to the following observation of Jenkins L.J., who delivered the opinion of the court : I cannot accept the view that, in referring to the person for whose benefit the debt or right was extinguished,' section 45(2) means any more than the person for whose benefit the extinguishment of the debt or right operated. I find it impossible to hold that the section requires it to be shown not only that some person benefited in fact but also that, in bringing about or suffering the extinguishment, the deceased was actuated by the intention, purpose or desire of benefiting that person. The motive or purpose of the deceased appears to me to immaterial, provided the transaction was gratuitous and did, in fact, benefit the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sufficient to introduce into the sub-section the requirement of intention to benefit as well as benefit in fact. The learned counsel for the revenue has also pressed into service the following passage from Dymond's Death Duties (Fifteenth edition) : " It is thought that ' extinguishment ' may be brought about by passive inaction, such as lapse of time or failure to apply, as well as by active steps .......". The provision of section 45(2) of the Finance Act, 1940, which came up for consideration in Stratton's case [1958] 34 ITR (ED) 47 (CA) is in pari materia with the provision of Explanation 2 of section 2(15) of the Act. It reads : " 45. (2) The extinguishment at the expense of the deceased of a debt or other right shall be deemed for the purposes of the said enactments to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression ' property ' in the said enactments shall include the benefit conferred by the extinguishment of the debt or right. " The learned judges of the Madras High Court who decided Controller of Estate Duty v. Estate of late V. L. Et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the debt or right (subject-matter of extinguishment) from escaping the liability of payment of estate duty. Limiting ourselves to the facts of the present case, it has to be seen as to what could be the import of the expression " conscious inaction " used in the Madras High Court judgment. Without attempting to be exhaustive, it could mean that the deceased was ignorant of the law of limitation or that he was, for some reason, unable to take civil action for recovery of the debt. In either of the situations, if he had tried to recover the loan amount after it became time-barred, he could not have successfully maintained the suit for recovery, either by pleading ignorance of law or any other kind of his inability to bring the suit earlier. On behalf of the respondents, the learned counsel, Mr. Bhat urged, relying on the following decision in Commissioner of Income-tax v. Nathimal Gaya Lal [1973] 89 ITR 190, 197, 198 (All) [FB] : " Moreover, as section 25A(3) is a provision which creates a legal fiction, we have to interpret the provision in such a manner as would not work injustice to a party, for even when the court steps into the world of legal fantasy, the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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